Downsized Harland Clarke, Consol price firm in busy trading; Murray Energy slides amid Bowie news

By Paul Deckelman

New York, Oct. 31 – The high-yield primary market closed out the month of October on Tuesday with a downsized pricing from check printer and advertising services company Harland Clarke Holdings Corp. It brought a $450 million add-on to its existing 2022 senior secured notes to market; the new bonds firmed when they hit the aftermarket, with the new deal the busiest credit of the day in Junkbondland.

High-yield syndicate sources also heard terms on a downsized $300 million offering of eight-year senior secured notes from coal mine operator Consol Mining Corp., which technically had actually priced late Monday.

That Consol deal was also actively traded, firming smartly from its par issue price.

The Harland Clarke and Consol deals brought new issuance for the month up to $24.12 billion of new U.S. dollar-denominated and fully junk-rated paper – down from September’s total, but more than double the amount priced in October of 2016. Year-to-date issuance meantime remained well ahead of the year-ago pace.

Several prospective new deals joined the forward calendar.

Residential loan company Freedom Mortgage Corp. began shopping around a $400 million issue of seven-year notes, with pricing expected later on in the week.

Bowie Resource Partners LLC took to the road with a $375 million offering of five-year senior secured notes expected to price early next week, as part of the financing for a buyout of that coal company by an investment group that includes sector peer Murray Energy Corp.

Murray Energy’s own existing bonds were at the same time seen by traders to have fallen sharply on sizable volume.

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had first turned mixed on Friday after two straight lower across the board sessions and three mixed sessions in a row before that.

Downsized Harland Clarke add-on prices

Only one new issue actually priced on Tuesday, as Harland Clarke Holdings Corp. was heard by high-yield syndicate sources to have brought a downsized $450 million add-on (B1/BB-) to its existing 8 3/8% senior secured notes due Aug. 15, 2022 to market.

It priced at 104.75, in line with price talk.

The deal was downsized by $50 million from an originally announced $500 million.

The Rule 144A and Regulation S for life transaction came to market via joint bookrunners Credit Suisse Securities (USA) LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Jefferies LLC, Macquarie Capital (USA) Inc. and Wells Fargo Securities LLC.

Fifth Third Securities, Inc., Regions Securities LLC and Eaglehill Advisors LLC acted as co-managers on the offering.

Besides Harland Clarke Holdings, Harland Clarke Corp., Scantron Corp., Checks in the Mail, Inc., Valassis Communications, Inc., Valassis Direct Mail, Inc. and Valassis Manufacturing Co. were co-issuers on the deal.

Harland Clarke, a San Antonio, Texas-based provider of media delivery, payment solutions and marketing services, priced an upsized $350 million issue of those same notes at par back on Feb. 2 also in a regularly scheduled forward calendar offering.

The new Rule 144A tack-on notes will become immediately fungible with the existing Rule 144A notes, while the new Regulation S tack-on notes will become fungible with the existing Regulation S notes at the conclusion of a 40-day restriction period.

The company plans to use the add-on proceeds, along with the proceeds from its concurrent new term loan financing, to refinance its existing tranche B-5 term loan and tranche B-6 term loan and pay the outstanding borrowings under its ABL facility. The syndicate sources said that some of the proceeds may also now be used to provide cash for the company’s balance sheet.

Consol Mining terms emerge

Market participants also learned that Consol Mining Corp., a Pittsburgh-based coal operator, had finally priced its twice-downsized $300 million offering of senior secured second-lien notes (CCC+/B3) due 2025.

The deal was first announced on Oct. 23 and had been expected to price at the tail end of last week, but that did not happen and the issue was ultimately floated off to this week. While the actual pricing took place late Monday, most people first saw the terms on Tuesday, a market source said.

The notes priced at par to yield 11%, at the wide end of pre-deal price talk on the issue of 10.75% to 11% – which was well wider than the 9% area price talk which had circulated in the market towards the end of last week.

The issue was twice downsized before it finally got done, first from the originally planned $350 million to $325 million earlier Monday, and then again later in the session to $300 million.

That Rule 144A and Regulation S for life transaction was brought to market via left-side bookrunner J.P. Morgan Securities LLC., along with Bank of America Merrill Lynch, Citigroup, Credit Suisse,Goldman Sachs & Co., Huntington Investment Co., PNC Capital Markets LLC and Stifel, Nicolaus & Co. Inc.

Consol Mining is being spun off from its corporate parent, Consol Energy Inc., an oil and natural gas exploration and production company also based in Pittsburgh, and it plans to use the new-deal proceeds, together with borrowings under new term loan facilities and a revolving credit facility to be entered into upon its separation from Consol Energy, to fund that spinoff via a payment to Consol Energy under the terms of the coming separation.

A portion of the proceeds will also be used to refinance the existing revolver debt of CNX Coal Resources LP, to fund working capital needs and for general corporate purposes.

October issuance off from September

The two new deals brought October’s total issuance of new dollar-denominated and high-yield-rated paper from domestic or industrialized country borrowers up to $24.12 billion in 41 tranches, according to data compiled by Prospect News.

That was off from the $33.06 billion of such paper that got done in 59 tranches in September, though it was still slightly ahead of the monthly average so far this year of $23.17 billion.

The most active month seen so far this year has been March, when an astounding $43.13 billion of new bonds were priced in 73 tranches.

And October’s tally was still more than twice the feeble $14.25 billion that got done in just 25 tranches in October 2016.

On a year-to-date basis so far, cumulative issuance is now $231.72 billion in 426 tranches, running around 20% ahead of the $192.74 billion that had priced in 296 tranches by this time in 2016.

This October’s issuance, in fact, vaulted 2017’s volume so far ahead of the $226.78 billion that was seen for the full year 2016.

Iron Mountain taps sterling market

There was one more pricing of note that took place on Tuesday, as Iron Mountain Inc. became the latest in a string of United States-based companies to look overseas to fulfill some financing needs, in this case, to the sterling-denominated market.

The Boston-based provider of storage and information management services priced £400 million of 3 7/8% senior notes due 2025 (Ba3/BB-), according to a news release.

The notes were sold via the company’s British subsidiary Iron Mountain (UK) plc.

Goldman Sachs & Co. LLC, Barclays Bank plc and HSBC Securities (USA) Inc. were the bookrunners on the deal.

Proceeds will be used to fund the redemption of the company’s £400 million of 6 1/8% senior notes due 2022 issued by its Iron Mountain Europe plc entity.

Freedom Mortgage slates deal

Back in the domestic dollar-denominated bond market, syndicate sources heard that Freedom Mortgage Corp., a Mount Laurel, N.J.-based non-bank residential mortgage loan originator and servicer, plans to sell $400 million of seven-year senior unsecured notes, with pricing expected later this week.

That Rule 144A/ Regulation S for life deal will come to market via Barclays Capital Inc., J.P. Morgan and Citigroup.

It will be marketed to potential investors via conference calls and meetings through Thursday, including a New York luncheon meeting and global investor call slated for Wednesday; pricing is expected soon after the marketing process.

The company plans to use the new-deal proceeds to fund cash to its balance sheet for strategic acquisitions of mortgage servicing rights and other assets.

Bowie Resource buyout funding

The syndicate sources also said that Bowie Resource Partners, LLC, a Louisville, Ky.-based coal mining company, plans to sell up to $375 million five year senior secured notes as part of the financing for the planned buyout of the company.

Pricing is seen early next week.

The company began a roadshow in New York on Tuesday; that marketing campaign will continue there on Wednesday and Thursday, will move to Boston on Friday, including a group luncheon there, and is scheduled to conclude in Los Angeles on Monday, with pricing expected thereafter.

The notes will be issued by Bowie Resource Holdings LLC and Canyon Finance Corp. in a Rule 144A/Regulation S for life transaction that will be brought to market via sole bookrunner Jefferies.

The bond deal is part of a financing effort for the Bowie buyout transaction that will also include a $135 million 5.5-year senior secured second-lien term loan facility that will be marketed on the roadshow concurrently with the bond issue.

Bowie is being acquired in a complex transaction led by Murray Energy Corp., a St. Clairsville, Ohio-based coal producer, and by investors including John Siegel, Bowie’s current chairman.

It will be renamed Canyon Resource Partners LLC and become part of a new company, to be called Canyon Consolidated Resources LLC that is being formed via the combination of the respective Western bituminous coal assets and capabilities of Murray Energy and Bowie. Murray Energy and entities owned or controlled by John Siegel will each own a 30.5% stake in the new company, while some 28.5% of the new company will be owned by current second lien lenders, via warrants.

Proceeds from the bond deal and the term loan financing will be used to refinance Bowie’s existing credit facilities, fund the acquisition of Bowie by Canyon Consolidated Resources, fund fees and expenses and place cash on the balance sheet.

New Harland Clarke tops actives list

In the secondary arena, traders said the new Harland Clarke 8 3/8% senior secured notes due 2022 moved up after pricing at 104.75.

Traders at three separate shops pegged the bonds going out at 105½ bid.

Another market source put them in a 105 3/8-to-105 5/8 bid range.

More than $35 million of the new notes changed hands, topping the junk market’s Most Actives list.

Consol notes firm smartly

Traders also saw brisk trading in the new Consol Mining 11% senior secured second-lien notes due 2025, which priced at par late Monday and which then moved up in Tuesday’s dealings.

One saw the bonds trading between 101¾ and 103 during the day, with the final trades of the day in a bid range between 102¾ and 103.

Two others located the bonds around 102¾ bid at the close, on volume of more than $17 million.

Murray paper mauled

In the secondary market, traders said that Murray Energy’s 11¼% notes due 2021 “were weaker than usual,” as one put it, seeing the coal operator’s notes down from their recent levels around 57 or 58 bid, finishing down 2½ points on the day at 54¾ bid.

Another trader also saw them around there and said they were ‘”pretty active,” with over $29 million traded.

He attributed the slide to the Canyon Consolidated news – as noted, Murray Energy will be taking about a 30% stake in a new company formed by the leveraged buyout of sector peer Bowie Resource Partners.

Another trader, who has watched Murray’s bonds deteriorate with the sagging fortunes of the coal industry – hurt by both environmental regulations and by stiff competition that coal faces from cheaper natural gas –, indicated a degree of astonishment that “they can be acquiring anybody with their own bonds down around 55.”

Indicators stay mixed

Statistical market performance measures were mixed for a third consecutive session on Tuesday. They had first turned mixed on Friday after two straight lower across the board sessions and three mixed sessions in a row before that.

The KDP High Yield Daily Index eased by 2 basis points Tuesday to close at 72.23, after having been unchanged on Monday and down by 9 basis points on Friday, its third straight loss after one unchanged session and one gain.

For a second straight session, its yield rose by 1 bp, identical to Monday’s gain, ending at 5.19%.

However, the Markit CDX Series 29 High Yield Index gained nearly 5/32 point on Tuesday to finish at 108 3.8 bid, 108 7/16 offered. On Monday, the index had closed down 3/32 point, its first loss after having gained 5/32 point on Friday, which in turn had followed four successive losses before that.

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